2014: The Sharp Ratio: Applying a Nobel Prize-Winning Concept to Income Property and Stocks

In this episode, Manny Kim from Giza Capital joins the show to discuss the Sharp Ratio and its application to income property. The Sharp Ratio, developed by William F. Sharp, measures the reward-to-variability ratio of an investment and is widely used in quantitative finance. It compares the excess return of an asset class to the standard deviation of that return, providing a single number to assess investment performance. This ratio allows for apples-to-apples comparisons between different asset classes, including real estate and stocks. Real estate tends to have lower volatility than stocks due to its lower liquidity, making it a potentially attractive investment. However, it is important to consider the assumptions and limitations of the Sharp Ratio, such as the stability of variance and the distribution of returns. By calculating the Sharp Ratio, investors can evaluate risk-adjusted returns and make informed investment decisions.

 

Website: https://gizacapital.com/

#SharpRatio #InvestmentPerformance #RealEstate #StockMarket #RiskAdjustedReturns

Key Takeaways:

Jason's editorial

1:25 Welcome to Portofino, Italy

4:49 "Buy and Hold"

6:09 The "Due On Sale" Clause- addressing the housing shortage

7:11 Massively low rates

Manny Kim interview

8:46 Introducing the Sharpe Ratio

9:21 How and why the Sharpe Ratio applies to income property and not just the stock market

10:50 What is the Sharpe ratio

12:23 A theoretical sample

13:23 Income property- a better risk adjusted return

15:00 Pros and cons

17:16 Actual calculations for stock market and income property

18:28 Calculating the Sharpe ratio for the stock market

20:00 Doubling the Sharpe ratio with income property

21:27 Comparing the stock market versus income property

 

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